One critical misconception is that a subcontractor’s bankruptcy means that it is going out of business. A bankruptcy by a subcontractor may actually be the method by which the subcontractor continues to operate. For many businesses, the legal process of bankruptcy may simply lead to a restructuring of debt, under Chapter 11 of the U.S. Bankruptcy Code, and operations rather than liquidation, under Chapter 7.
The real issue is what the subcontractor seeks to accomplish within the bankruptcy. For example, a subcontractor may seek to assign or transfer all of its obligations and rights, which, in turn would require the general contractor to assert its contractual rights relative to these actions.